While the Indian rupee has depreciated by around 5% against the US dollar since the start of the year, experts believe that students who take out student loans to study abroad are currently protected from currency volatility. However, they think students could feel the pinch if the rupee continues to depreciate further.
“With the depreciation of the rupee against the dollar, the costs for students going to study in the United States are expected to increase. While sanctioning loans, there is generally leeway to consider aspects such as currency fluctuations and the general increase in the total cost of education during the study period and therefore the sanctioned limits are generally adequate to deal with these vagaries,” said Arijit Sanyal, Managing Director (MD ) and CEO of HDFC Credila Financial Services.
According to Ankit Mehra, co-founder and CEO of Gyandhan, a digital first company which has disbursed over Rs 1,000 crore in study abroad loans to over 3,000 Indian students, amid sudden devaluation as students are advised to budget for a 5 percent depreciation of the currency.
“As long as you take that into your calculation, it won’t be a problem. Even though the rupiah has depreciated a lot, it does not drastically change the overall cost dynamics”.
An IDBI bank executive said the loan is given in rupees and is converted into dollars at prevailing rates depending on the needs of the students. Technically, he will receive less dollars when the rupee weakens. According to the current assessment, the rupiah’s current weakening trajectory is within manageable bounds, he said.
The rupiah has depreciated sharply since the outbreak of tensions between Russia and Ukraine in February. The Reserve Bank of India (RBI) has intervened aggressively in the currency markets, trying to slow the pace of the fall.
The rupee broke above the 78/$ levels this week. According to a survey conducted by Trade standard This week, the Rupee is expected to trade sideways in the short term and is unlikely to depreciate sharply as the RBI is expected to continue to support by buying Dollars. While the central bank may continue to intervene in the FX market, the rupiah may still be under pressure as weaker fundamentals and Brent crude hovering around $120 a barrel have heightened concerns over a growing trade deficit (to the tune of 3.5%). The rupee depreciated by 4.8% against the dollar in 2022.
“Oil prices rose as tight global supply outweighed fears that demand would come under pressure from a rise in Covid-19 cases in Beijing and further interest rate hikes. factors are putting pressure on the rupee.This depreciation is however a boon for exporters, it creates pressure on Indians who send dollars abroad, whether for tuition fees or trips abroad for leisure,” said Remitx, a cross-border money transfer company.
Mehra explained that the depreciation of the rupee can pose a problem for students who have taken out loans from Indian lenders. “If you took a $40,000 loan from an international lender, the loan amount does not change when the rupee depreciates. But if you have taken a loan from the Indian lender and the currency suddenly depreciates, the loan amount becomes smaller and you may need to raise more funds or apply for an additional loan,” Mehra said.
Regarding repayment, there are two scenarios: one, if one stays in the US and repays the loan there and second, if one returns to India and repays the loan from here. In the first scenario, there will be no change even if the currency depreciates. But if the person has returned to India and taken a loan from the US lender, the amount of EMI will increase significantly when the currency depreciates.
Now, if the loan is from an Indian bank and one returns to India, they will repay the loan like any other loan. But if they stay in the United States, a depreciation of the rupee will in fact be favorable to them because suddenly the EMI will fall.